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Tag: 401(k) definition

what is the 401k plan

What is the 401k plan? It’s a retirement plan with pretax incentives. Today, there are several types of individual retirement accounts (IRA’s) providing better performance usage of retirement proceeds as investment vehicles. The advantages of traditional IRAs are that they offer a wide range of investments available from stocks, bonds, mutual funds without the tax levies on capital gains, dividends or interest, until a withdrawal is made by the IRAs owner. Today popular IRAs are the self-directed accounts, which share identical retirement goals as a traditional 401K plans. The biggest difference is that the owner of the IRA account gets to make the decisions on how the funds are invested, increasing the value of the IRA account substantially.

What is a 401K?

In these stressful economic times, as people search for employment or college graduates head off to their first interviews, they will probably hear about 401k plans. Many will ask what is a 401k? The term is tossed about, but many do not have a good understanding of the topic. A 401k is a type of retirement savings account offered by many companies in which employees contribute part of their wages to this fund, allowing it to generate interest, and they are not taxed on those earnings until the funds are withdrawn at retirement age which is generally after age 59. In many cases, the employer matches or at least supplements the worker’s contributions. These plans are also known as IRA’s, or individual retirement plans. In self-directed IRA’s, the individual is able to make investments with his or her earnings, such as in stocks and bonds, to add to earnings and have a more ample retirement.